This effect causes rings to appear translucent, by drawing them in a special mode. Normally when an image is drawn, the corresponding pixels of video memory are simply overwritten; whatever image they previously contained is lost. In X-Ray mode, the pixels are modified, instead of being overwritten: the new image is superimposed onto the background, so that the background has transformed colors, but remains visible.
To enable/disable X-Ray for new rings only, use Image/X-Ray or F8. Since existing rings are unaffected, the change occurs gradually. To enable/disable outlining for both new and existing rings, use Image/Invert/X-Ray or Shift+F8.
The X-Ray effect depends entirely on your graphics card's support for XOR operations (eXclusive OR is an operation in boolean math). Note that X-Ray requires the video memory to be read as well as written, and can therefore greatly increase graphics overhead, particularly when combined with fill, outline, and wide lines; see performance. Using X-Ray with fill but without mirroring can make the application unresponsive. If this occurs, try pressing Panic (Esc). In this specific case it may help to locate the back buffer in system memory, rather than video memory; see the DirectDraw options.